The Court considers the legality of a specialist regulator’s judgement of non-compliance

In Inclusion Housing Community Interest Company v Regulator of Social Housing [2020] EWHC 346 the Court considered whether the Regulator had been entitled to conclude that the Inclusion Housing Community Interest Company (the CIC) was non-compliant with the social housing regulatory regime.

The CIC was a registered social housing provider which leased properties from a developer to sublease to tenants in need of social housing. The Regulator conducted an analysis of the CIC’s business model and judged that the CIC was non-compliant with the conditions for registration as a social housing provider and required intensive regulatory engagement to bring it into compliance.

The CIC sought to challenge to the judgment on the basis that the Regulator:

• failed to give adequate reasons for its decision;
• reached conclusions on risk, governance, financial viability and growth that were irrational;
• unlawfully departed from its own policy on the grading of financial viability; and
• took a decision that was disproportionate, in breach of its statutory duties.

The claim was on dismissed on all grounds.

The Court accepted that the reasons given did not engage in the detail of the CICs risk mitigation measures but that they did explain in broad terms why the Regulator considered those measures to be insufficient to demonstrate compliance. This was held to be sufficient in regard to its duty to give reasons because it enabled the CIC to understand how the Regulator had reached its decision.

Further, the decision was not considered to be irrational. The Court reminded itself of previous authorities highlighting the difficulty of bringing a rationality claim against a specialist regulator but also referred to the statement in R v Parliamentary Commissioner for Administration ex p. Balchin [1996] EWHC 152 (Admin) that states it is sufficient to establish an error of reasoning which robs the decision of logic. In this case, the Court noted that the Regulator was entitled to reach the conclusions that it had as to the degree of risk presented by the CIC’s business. It was open to the Regulator to consider that changes in the Government’s policy on payments to those in receipt of social housing were a realistic risk, and also that the CIC’s attempt to diversify its range of partners had increased the risk because it was entering into more developer leases without a break clause.

The CIC sought to argue that riskier business models had previously been accepted by the Regulator. However, the Court did not find the examples cited to be sufficiently similar and noted that in a context where each judgment is multi-factorial and fact-specific, a comparison between outcomes in different cases would rarely lead to a successful rationality challenge.

The Court also considered that the Regulator had not departed from its policy and that the grading of financial viability was a matter of judgment for the Regulator.

As to whether the Regulator had acted proportionally, considerable weight was given to the Regulator’s conclusion that it had. It was a specialist regulator exercising a judgment in the area of its expertise and its decision did not interfere with the CIC’s fundamental rights. The Court also noted that the Regulator had not removed the CIC’s registration but was seeking to encourage changes that would lead to compliance which, in the Court’s view, was a proportionate response.